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Nigeria: Change In Dimension As Abuja Appellate Court Orders Rivers And Lagos To Halt Enforcement Of VAT Law

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By Iliya Kure

Nigeria’s Court of Appeal sitting in Abuja, has ordered Rivers and Lagos State Governments to stay action on their moves to enforce collection of Value Added Tax (VAT), pending legal resolution of the matter.

The court ordered the suspension of enforcement of a judgment by a Federal High Court in Port Harcourt, the Rivers State capital, upon which the two States were relying upon.

Presiding Judge, Haruna Tsanami, who delivered the ruling of three-man panel, also suspended the operation of the law assented to by Governor Wike, for collection of VAT by Rivers State Government.

The court held that since the two parties (FIRS & Rivers State Government) had submitted themselves to jurisdiction of the court for adjudication, they must not do anything that will destroy the subject matter of the appeal.

Mr Tsanami granted “status quo ante bellum” in favour of the Federal Inland Revenue Service (FIRS).

Lagos Joins Suit

FIRS in an appeal has asked the court to set aside the judgment of the Federal High Court Port Harcourt, as well as to stay the execution which granted power to the State Government to collect VAT.

On Friday, however, the dispute assumed a new dimension, as Lagos State Government applied to the Court of Appeal to be joined as a co-respondent in the appeal filed by the FIRS.

Attorney General of Lagos State, Moyosore Onigbanjo (SAN), informed the court of their application for the Lagos State Government to be joined as a party in the appeal, arguing that the application for joinder should be taken first before FIRS’ application for stay of execution, adding that it was in the interest of justice for his state to be joined in the suit.

But counsel to FIRS, Mahmoud Magaji (SAN), argued that the application for stay of execution should take precedence over the application for joinder.

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Counsel to Rivers State Government, Emmanuel Ukala (SAN), spoke in support of Lagos State, quoting late MKO Abiola saying that you cannot shave a man’s head in his absence and that the Lagos State Government ought to be joined in the appeal.

After listening to their submissions, Justice Tsammani noted that it would be in the best interest of justice for the motion for joinder to be heard first. He stated that it was not necessary that the first application to be filed must be the one to be heard first.

Background

On 10th August, 2021 Justice Stephen Pam of the Federal High Court, Port Harcourt in a verdict in favour of Rivers State, held that it was unconstitutional for FIRS to collect VAT and personal income tax in Rivers State.

The court also ruled that Rivers State Government, and not the agent of the Federal Government, i.e., the FIRS, was authorised by the Nigerian Constitution to collect personal income tax in the state.

The Port Harcourt verdict led Rivers and Lagos State to introduce tax laws authorising their agencies to collect VAT.

Inauguration Of Tax Appeal Commission

Rivers State Government on Friday sworn-in a Four-Man Tax Appeal Commission, where it charged Commissioners to enshrine a new culture in which taxable persons and entities comply with the relevant tax laws in the state without hesitation.

Those worn-in included Justice Bennett Eke Ugbari (retd.), who is to serve as the chairman; Edwin Krukrubo, Owhonda Ihekwoaba Nobel and Mrs Gift Sovins.

Governor Wike tasked them to focus on dealing with complaints arising from those who did not want to pay taxes, while also prevailing on those who believed that the tax body was doing what it was not supposed to do.

“I have confidence in you; the chairman, that you will be able to lead the members of the commission to do the right thing,” Wike said.

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Responding, Chairman of the Commission, Justice Bennett Eke Ugbari (retd.), said, “In carrying out our assignment, the commission shall be guided by the principle of fair hearing, justice and equity. We shall ensure that there is a proper assessment of taxes and that every taxpayer in Rivers State pays adequate tax as required by the relevant tax laws.”

Meanwhile, Lagos State Inland Revenue Service is already making moves to come up with a VAT unit, as well as train its staff on VAT collection.

Governor Sanwo-Olu, on Friday signed into law the state VAT Bill, which was passed by the House of Assembly.

Introduction Of VAT 

VAT was introduced in 1993 by Gen. Sani Abacha, through Decree No.102 to replace the then sales tax operated under Decree No.7 of 1986, which was hitherto administered by State Governments and the Federal Capital Territory (FCT).

The decree has empowered FIRS to collect VAT on behalf of the 36 states and the FCT.

According to the sharing formular as stated in in Section 40 of the VAT Act 15% of the collection should go to the FG; 50% to states; and 35% to LGs. Net 4% goes to FIRS to cover cost of collection.

In Nigeria, VAT contributes significantly to the general revenue collected by Federal Government, accounting for over 16.2% of the Gross Domestic Product (GDP) in 2019.

Recent Revenue Generated From VAT 

Data from National Bureau of Statistics (NBS) filed by FIRS indicates that Nigeria may have earned about N2.5 trillion from January 2020 to June 2021 at a 7.5 per cent VAT rate.

In February last year, Nigeria increased VAT rate from 5 per cent to 7.5 per cent, saying it anticipated a deficit of N2.18 trillion ($6 billion) in its 2020 budget.

A breakdown of 2020 collection shows that Nigeria earned a total of N1,531,170,900,00, comprising an Import VAT collected by the Nigeria Customs Service (NCS), N347,724,800,000, and Non-import VAT of N1,183,446,100,000.

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Alleged Injustice In National Tax Sharing Formular

Over the years, Rivers and Lagos States have remained the backbone of revenue generation in Nigeria, but have overtime complained of how Federal Government have been unfair in the sharing formular.

Of the total N5,629,739,500,000 VAT collected by FIRS between 2016 and 2020, Lagos and Rivers, were said to have contributed over 70 per cent of the collectibles in the country – responsible for N3,940,817,650,000.

Governor Wike of Rivers State in a meeting with Corporate bodies on the VAT said, “Let me tell you the injustice in this country. In June 2021, which we shared in July, VAT collected in Rivers State was N15.1billion. What they gave us was N4.7 billion. See the gross injustice and this money includes contracts awarded by the Rivers State Government.

“This is not an issue of a party; it is the issues of infraction of the constitution, issues of illegality. Look at Lagos; it is not the same party as me. In June 2021, the VAT collected in Lagos was N46.4 billion but see what Lagos got, N9.3 billion. Have you seen the injustice in the country? VAT collected in Kano was N2. 8billion and they gave them N2. 8billion. Is there any justice in this country?” he asked.

States May Not Get Money

Going by ruling of the Federal High Court, Port Harcourt, many states in the country may not be able to meet their financial obligations due to poor tax regime and system in their states, as well as the dwindling revenue currently experienced by the federal government.

There is a general fear that up to 30 states may go bankrupt if Rivers and Lagos State Governments go ahead to collect their VAT.

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